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What do Trump’s tariffs mean for markets?
The S&P 500 is now within 3% from the level before President Trump’s “Liberation Day” tariff announcements, as market sentiment improves on hopes of tariff de-escalation, expectations of a resumption of Fed rate cuts, and positive earnings results. We believe the risk of a more severe economic downturn is now more limited, and we rate US equities as Attractive.
Investment view
Our base case is that tariffs will be reduced from current announced levels over the remainder of the year. We view US equities as Attractive and believe investors can mitigate near-term market timing risks through phasing strategies or through capital preservation strategies. We also believe that gold, quality bonds, and hedge funds represent valuable portfolio diversifiers.
Related insights
New in recent weeks
US Treasury Secretary Scott Bessent said the US and South Korea had a “very successful” meeting on trade issues, while Japan’s Finance Minister Katsunobu Kano said specific currency levels or targets did not come up in his talks with Bessent last week.
Japan formally kicked off trade negotiations with the White House last week. Few details were revealed, but Trump claimed “big progress” in a social media post. Japan's top negotiator Ryosei Akazawa said both parties agreed to hold a second meeting later this month and that Trump said getting a deal with Japan is a “top priority.”
A range of key tech products such as smartphones, personal computers, memory chips, and servers are temporarily exempted from the US tariffs, although US President Donald Trump downplayed the exemption as a procedural step. He said that semiconductors and the whole electronic supply chain remain a target of his overall tariffs.
Did you know?
High volatility has historically been followed by higher-than-normal returns. While each case is different, levels of the VIX above 40 have historically been followed on average by 30% one-year returns on the S&P 500, with a 95% chance of a gain.- One way to mitigate market entry risks is by using a phasing-in strategy. Since 1945, phasing into a balanced 60/40 portfolio over 12 months has outperformed cash in approximately 74% of one-year periods and 83% of three-year periods. When initiated after a market decline of over 10%, this strategy outperformed cash in 82% of one-year periods and 94% of three-year periods.
- Analyzing the 12 occasions when the S&P 500 has fallen by 20% from its peak since 1945, the index delivered a positive subsequent one-year return on 67% of occasions, with a mean return of 12.9%. Over a three-year horizon, this rose to 91% of occasions with a mean return of 29.2%.
